CARILEC: Renewable Energy Conference, St. Lucia Renewable Energy & Carbon Finance for the Caribbean

1. CARILEC: Renewable Energy Conference, St. LuciaRenewable Energy & Carbon Finance for the Caribbean Presented by: John Paul Moscarella Executive Vice President Econergy International Corporation www.eic-co.com November 4-5, 2002

2. Who is Econergy... Econergy International Corporation is a technical advisory and financial asset management firm serving clients in the energy and environment industries. CARILEC: Renewable Energy Conference - - St. Lucia

3. Firm Overview • International energy and environmental consulting firm • Over 10 yr. history of doing business in over 50 countries • Staff includes bilingual French, Spanish, and Portuguese • Offices in Mexico, Brazil as well as Washington, DC and Boulder, CO • experience in: • Financial fund design & management • conventional power generation • transmission development, • renewable energy, • energy efficiency, • greenhouse gas emissions management, • and energy services performance contracting. CARILEC: Renewable Energy Conference - - St. Lucia

4. Our Niche Energy Development i.e. “projects” Environmental Services i.e. “GHG emissions” Financing EIC CARILEC: Renewable Energy Conference - - St. Lucia

5. Firm Overview: Selected Projects • World Bank $180 MM Prototype Carbon Fund (PCF) Design • Co-owner of Mexican ESCO (Empresas ESM, S.A. de C.V.) • CleanTech Fund $20 MM VC fund • $3 MM carbon intermediary agreement with World Bank • $40 MM carbon facility for CAF (regional development bank in Caracas) • Peru: Rice Hulls 20MW project • Brazil portfolio of biomass cogen (150 MW) • Mexico 20 MW wind farm • Panama hydro expansion project • CREDP – Financial Mechanisms Design (2002) CARILEC: Renewable Energy Conference - - St. Lucia

6. US Venture Capital Model IPO Merger Strategic Sale Institutional Investment Consolidation Exit Strategy Angel or Seed Investors Growth Friends & Family Start-up EIC Value Proposition: environmental assets in energy business (carbon credits) CARILEC: Renewable Energy Conference - - St. Lucia

7. ESM • Founded in 1998 • Based in Monterrey • The leading ESCO in Mexico • Up to $2.5 million in projects financed to date • $30 million worth of projects in pipeline • Carbon Credit Portfolio - 2 MM tCO2e approx. • Energy Efficiency • Renewable Energy • 20MW Wind Farm in development • Several Financial Partners • EIC Group • Environmental Enterprises Assistance Fund (EEAF) • Calvert Funds • E & Co. • Sumitomo • Private Investors CARILEC: Renewable Energy Conference - - St. Lucia

8. ESCO Value Proposition Carbon credits = value added environmental asset Exit Strategy = 5X EBITDA CARILEC: Renewable Energy Conference - - St. Lucia

9. Drivers for the GHG Credit Markets • Kyoto Protocol (Article 3) will require Annex B countries to reduce GHG emissions by at least 5% (in aggregate) below 1990 levels in the period 2008-2012 • QELRCs are defined in Annex B, e.g.; • EU = 92% of 1990 level • USA = 93% of 1990 level • Japan = 94% of 1990 level • Mexico = no cap CARILEC: Renewable Energy Conference - - St. Lucia

10. Drivers for International GHG Credit Markets • The Protocol provides for three “Flexibility Mechanisms” to allow Annex B countries to meet their reduction commitments. • Article 6: Joint Implementation (JI) (key mechanism for Mexico) • Article 12: Clean Development Mechanism (CDM) • Article 17: Emissions Trading (ET) • AOSIS: Key opportunities for the Caribbean countries CARILEC: Renewable Energy Conference - - St. Lucia

11. Carbon Market 1997-2002 (based on EIC data) • Without regulatory driver, carbon prices most influenced by • level of risk • transaction costs • ability to count toward the buyers compliance with national emission limitation obligations • private, bilateral negotiations CARILEC: Renewable Energy Conference - - St. Lucia

12. Carbon Market 1997-2002(based on EIC data) • Total transactions estimated between 100 million and 180 million tons CO2 equivalent • Various economic models predict prices upwards of $300 per ton • Real life transactions have seen prices at a fraction of what a future, regulated market would bear • Publicized trades prices have ranged from USD $.50 to over $22 since 1997. • In the past 12 months, CDM prices have leveled off at $1.50 to $5.00/tCO2e • UK market has experienced recent spike in prices up to $16/t • Many transactions involve options for future purchase rather than a full-fledged spot or future sale CARILEC: Renewable Energy Conference - - St. Lucia

13. Total Known Carbon Transactions (Ca. $350 mm) Source: EIC Database 2002 (Mar.) 26 August 2002 CARILEC: Renewable Energy Conference - - St. Lucia Investments and Climate Change: Opportunities for Mexico

14. Annual Sales of Carbon Reductions (Tons CO2e) Source: EIC Database 2002 (Mar.) 26 August 2002 CARILEC: Renewable Energy Conference - - St. Lucia Investments and Climate Change: Opportunities for Mexico

15. Carbon Prices ($/tCO2e) 1994 to present Source: EIC Database 2002 26 August 2002 CARILEC: Renewable Energy Conference - - St. Lucia Investments and Climate Change: Opportunities for Mexico

16. Sources of Demand for GHG credits: Institutional Carbon Buyers • The Climate Trust (USA) • The World Bank Prototype Carbon Fund (PCF) $180MM + €70 million • World Bank’s Community Development Fund for Carbon - $100 MM (pending) • The Dutch Government (CERUPT & ERUPT) • International Finance Corp. – Netherlands Carbon Facility (INCaF) $40 million • Rabo Bank – Netherlands Carbon Facility (pending) • CAF $40 million available • Greenhouse Emissions Management Consortium (GEMCO), (Canada) • Private companies (electric companies) CARILEC: Renewable Energy Conference - - St. Lucia

17. Institutional Players:The Climate Trust • Approximately $3 million available for offset purchasing by the end of Q1 2002 • 850,671 tCO2 e under management ($1 M) • Closing on another 2.559 M tCO2 ($5.5 M under negotiation) • Gross portfolio price = about $2.00 per tCO2 (average price = $1.22) • Highest Price Paid = $4.50 per tCO2 • Closing on 7 new carbon contracts by Q3 2002 - - - 2 new projects recently signed • Ecuadorian Rainforest Restoration • Portland Web-based Carpool Project CARILEC: Renewable Energy Conference - - St. Lucia

18. Institutional Players:World Bank (Prototype Carbon Fund) • $180 mm in resources, plus € 70 mm from the Netherlands; scheduled to terminate in 2012 • Five projects completed, including host country approval (Latvia, Chile, Uganda, Brazil & Thailand) • Clearance for up to 15 projects, ca. $50 M • 25-30 projects to be completed in 1st 3 years of operation • 8 countries, 6 technologies and 4 regions • 30 projects in active review • Prices paid between 3.50 – 6.50 per tCO2 e • PCFplus provides outreach, research, & training CARILEC: Renewable Energy Conference - - St. Lucia

19. Institutional Players:The Netherlands • Largest Buy Signal with $1 Billion approved by parliament • 4 Tracks: • Competitive Tenders (ERUPT + CERUPT) • Purchasing Credits from all Developing Countries (currently seeking 3 million tCO2e CER) – 125 M tCO2 e (CDM+JI) • Also, setting Up Carbon Facilities with intermediaries PCF, IFC, CAF, and Rabo Bank • Bilateral agreements • Minimum Project Size: 100,000 tCO2e • Sustainable Development is important • Maximum Prices to be Paid (per tCO2e): • Renewable energy $4.90 (EUR 5.50) • Biomass $3.92 (EUR 4.40) • Energy Efficiency $3.92 (EUR 4.40) • Waste, fossil, others $2.94 (EUR 3.30) CARILEC: Renewable Energy Conference - - St. Lucia

20. Institutional Players:IFC – Netherlands Carbon Facility (INCaF) • IFC purchases greenhouse gas (GHG) emission reductions for the Government of the Netherlands under the CDM • $40 mm available over the next 3 years • Eligible projects: • renewable energy projects (e.g., biomass, wind, geothermal); • energy efficiency projects, supply side or demand side; • recovery and utilization of methane; and, • switching from fuels with greater to lesser GHG intensity. • Contracts must specify: • the volume of GHG emissions that are expected to be reduced, measured in metric tonnes of CO2 equivalent; • the price agreed per tonne of CO2 equivalent; and, • the payment period, typically either 10 or 14 years. CARILEC: Renewable Energy Conference - - St. Lucia

21. CAF Netherlands Carbon Facility • Between CAF and Dutch Ministry of Environment (VROM), for purchase of carbon from projects in Latin America • Purchase of 10 million tCO2 by mid-2005 for delivery through end 2012, for total cost of €45 million ($43.6m) • Sectors, in descending order of preference: renewable energy (includes small-scale hydro); sustainably grown biomass (no waste); energy efficiency; transportation; fuel switching and methane recovery; sequestration (pending COP/MOP and VROM decision). • Maximum purchase price of €5.5/tCO2 CARILEC: Renewable Energy Conference - - St. Lucia

22. Institutional Players:GEMCo • GEMCo is a non-profit consortium of Canadian energy companies focused on market-based ways of reducing GHG emissions • (ATCO Electric, BC Gas, Endbridge Consumers Gas and Pipelines, EPCOR Utilities, Nova Scotia Power, Ontario Power Generation, SaskPower, and TransCanada Pipelines) • Project investments to date: • Teletrips: eCommute pilot program 1-3.5 mm ERCs, 2002-2012 • Petro Source: CO2 injection option 600,000 mtCO2e, 2002-2012 • Iowa Farmers: agricultural sequestration 2.8 mm mtCO2e through 2012 • Norseman engineering: methane capture 301,000 ERCs over 14 years CARILEC: Renewable Energy Conference - - St. Lucia

23. CleanTech Fund (pending) • This private equity (venture capital) fund proposes targeting clean technology startup companies in Latin America & Caribbean • It has a proposed investment period of 5 years • It has an overall term of 10-12 years • Estimated returns: 20%+ • Carbon facility: 1 MM tCO2e • IDB lead investor, Swiss and Dutch investors committed, seeking strategic investor or energy player in Latin America CARILEC: Renewable Energy Conference - - St. Lucia

24. Institutional Players:The Private Sector • The private sector is starting to engage in a number of transactions: • primarily for low cost credits (<$2.5/tCO2); and • without government approval. • Internal corporate trading programs implemented at BP, Shell, others. • Bilateral pilot programs for JI and CDM are being considered. • National programs for domestic action are being defined. CARILEC: Renewable Energy Conference - - St. Lucia

25. Potential Carbon Credit Investors • Conventional, commercially-oriented • Will typically focus on risks to cash flow, demand “fire-sale” prices • Non-conventional, environmentally-oriented • May accept higher risk and pay slightly higher prices in exchange for environmental benefits • Political objectives • May allow for higher priced credits to meet regulatory compliance CARILEC: Renewable Energy Conference - - St. Lucia

26. Carbon Finance Modalities • Corporate Finance • Project Finance (off balance sheet) • Venture Capital • Letters of Credit • Insurance and Guarantees • Factoring • Leasing • Financial Intermediaries • Carbon Contract CARILEC: Renewable Energy Conference - - St. Lucia

27. Evolution of the International GHG Credit Markets • There are rules at present are being finalized (COP 8 in India). • Independent brokers and institutional players are beginning to emerge and establish themselves • Brokers appear to be in need of more sellers of “good credits” than buyers. • There is significant liquidity in the carbon finance arena today • Institutional players are driving the market! CARILEC: Renewable Energy Conference - - St. Lucia

28. Conclusions & Remarks – Renewable Energy • Growth in RE segment of energy is strong • Wind energy is booming in US and Europe – expect rapid growth in Latin America and Caribbean soon • Caribbean has vast renewable resources including wind, solar and biomass • Caribbean markets are relatively attractive for investment in renewable projects • Carbon financing is available, what is needed are good projects! CARILEC: Renewable Energy Conference - - St. Lucia